Street Talk: Cautious Optimism: the Watchwords for Volatile Sector - Biotech doesn't play by the same rules that most industries do when it comes to stock performance - BioPharm International

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Street Talk: Cautious Optimism: the Watchwords for Volatile Sector
Biotech doesn't play by the same rules that most industries do when it comes to stock performance


BioPharm International
Volume 20, Issue 7


Table 1. Big biotech stocks and how they've done
But that's the nature of the biopharmaceutical market, isn't it? Investors have to expect volatility here and they get it. Check out Amgen. By and large, most big company stocks don't get the yo-yo treatment. Usually stocks like Microsoft, Proctor & Gamble, or Bank of America are pretty stable. Not so the biotech giants. In the last year alone, Amgen has seen its stocks price trampoline between $52 and $77 per share, as a regular stream of clinical trial news hits the street and drives investors to feverishly buy and sell, accordingly. In the long run Amgen has come out ahead (Table 1). In the short-term, not always. But that's life in the biotech fast lane. Warren Buffet told his Berkshire-Hathaway shareholders at the company's infamous annual meeting in Omaha last month, he prefers stocks with "lumpy" returns of 15% or so to more steady ones that drift along at 10–12%. In other words, he'll take a little volatility to gain some better numbers.

Now, don't get me wrong. Buffet has taken great pains to say in the past that investments in BBH or any other life sciences stock or funds is akin to root canal or suffering through 10 minutes of "The View." But when he makes comments like that to his own shareholders, I have to think his cold demeanor toward biopharmaceutical stocks is thawing a bit, if he's willing absorb some lumps and bumps to get a better return.

Like Warren Buffet, my feeling is that you can't get too excited about short-term ups and downs. That's especially true of biotech, which doesn't play by the same rules that most industries do when it comes to stock performance. In the biotech world, success is defined by clinical successes and failures—not by shock waves resulting from outside-the-industry market downturns like we saw in January, February, and March. Companies that comprise the BBH—like Amgen and Genentech, are insulated from such external pressures, primarily as a result of their well-stocked pipelines and deep reservoirs of cash and R&D talent.

The big picture continues to brighten. We're also seeing an uptick in biotech investing from the venture capital community—a good sign that biotech can indeed march out of lockstep with the rest of the stock market and rise even higher than the broader markets. In addition, the biotech industry overall should benefit from ongoing pressure from Congress to lower drug prices. True, such pressures could slow the progress of some of the Big Pharma boys, but that will only level the playing field for the rest of the sector.

Besides, stalwarts like Amgen and Genentech should thrive just the same; both have strong pipelines and high demand for their products. Sales at both companies have been strong and should only grow stronger.

That should bode well for favorites like BBH, even in a volatile biotech environment. I've said it once and I'll say it again: BBH is chock full of companies whose products wind up in pharmacy prescription bins and stacked up on shelves along store aisles. That fact isn't going to change anytime soon and that's good news for BBH investors.

Consequently, my view of BBH is that it's a good long-term play. Companies like Genentech, which is heavily involved in the human genome project, and Gilead Sciences, which is working on new pharma drugs for HIV/AIDs and other diseases, could revolutionize healthcare.

With Genentech and Amgen swinging big bats at the heart of the order, I believe that the BBH fund continues to be a great way to play the biotech sector—and should be for the foreseeable future.

*I hold no position in BBH.

Celebrity author and business/finance commentator for CNN and Fox News, Brian O'Connell has written for The Wall Street Journal and Newsweek: Doylestown, PA, 215.230-3711,


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